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Obama to force lenders to accept short sales...
Topic Started: Mar 7 2010, 11:24 PM (494 Views)
LTC8K6
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Assistant to The Devil Himself
Obama wants to pay delinquent home "owners" to sell at a loss, and force lenders to accept it...

http://www.nytimes.com/2010/03/08/business/08short.html


Quote:
 
In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their homes. Now it will take a new approach: paying some of them to leave.

This latest program, which will allow owners to sell for less than they owe and will give them a little cash to speed them on their way, is one of the administration’s most aggressive attempts to grapple with a problem that has defied solutions.

More than five million households are behind on their mortgages and risk foreclosure. The government’s $75 billion mortgage modification plan has helped only a small slice of them. Consumer advocates, economists and even some banking industry representatives say much more needs to be done.

For the administration, there is also the concern that millions of foreclosures could delay or even reverse the economy’s tentative recovery — the last thing it wants in an election year.

Taking effect on April 5, the program could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through a process known as a short sale, in which property is sold for less than the balance of the mortgage. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed.

“We want to streamline and standardize the short sale process to make it much easier on the borrower and much easier on the lender,” said Seth Wheeler, a Treasury senior adviser.

The problem is highlighted by a routine case in Phoenix. Chris Paul, a real estate agent, has a house he is trying to sell on behalf of its owner, who owes $150,000. Mr. Paul has an offer for $48,000, but the bank holding the mortgage says it wants at least $90,000. The frustrated owner is now contemplating foreclosure.

To bring the various parties to the table — the homeowner, the lender that services the loan, the investor that owns the loan, the bank that owns the second mortgage on the property — the government intends to spread its cash around.

Under the new program, the servicing bank, as with all modifications, will get $1,000. Another $1,000 can go toward a second loan, if there is one. And for the first time the government would give money to the distressed homeowners themselves. They will get $1,500 in “relocation assistance.”

Should the incentives prove successful, the short sales program could have multiple benefits. For the investment pools that own many home loans, there is the prospect of getting more money with a sale than with a foreclosure.

For the borrowers, there is the likelihood of suffering less damage to credit ratings. And as part of the transaction, they will get the lender’s assurance that they will not later be sued for an unpaid mortgage balance.

For communities, the plan will mean fewer empty foreclosed houses waiting to be sold by banks. By some estimates, as many as half of all foreclosed properties are ransacked by either the former owners or vandals, which depresses the value of the property further and pulls down the value of neighboring homes.

If short sales are about to have their moment, it has been a long time coming. At the beginning of the foreclosure crisis, lenders shunned short sales. They were not equipped to deal with the labor-intensive process and were suspicious of it.

The lenders’ thinking, said the economist Thomas Lawler, went like this: “I lend someone $200,000 to buy a house. Then he says, ‘Look, I have someone willing to pay $150,000 for it; otherwise I think I’m going to default.’ Do I really believe the borrower can’t pay it back? And is $150,000 a reasonable offer for the property?”

Short sales are “tailor-made for fraud,” said Mr. Lawler, a former executive at the mortgage finance company Fannie Mae.

Last year, short sales started to increase, although they remain relatively uncommon. Fannie Mae said preforeclosure deals on loans in its portfolio more than tripled in 2009, to 36,968. But real estate agents say many lenders still seem to disapprove of short sales.

Under the new federal program, a lender will use real estate agents to determine the value of a home and thus the minimum to accept. This figure will not be shared with the owner, but if an offer comes in that is equal to or higher than this amount, the lender must take it.

Mr. Paul, the Phoenix agent, was skeptical. “In a perfect world, this would work,” he said. “But because estimates of value are inherently subjective, it won’t. The banks don’t want to sell at a discount.”

...


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Kerri P.
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My mom just turned in the keys to her house in Mass back to the bank. because the bank was blocking the sale on her home using a short sale. Bank of America really screwed her over.
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LTC8K6
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Must be nice. The same banks can finance the new loans on the properties, and we can start the game all over again next year when the new loans are in default..
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Baldo
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Kerri P.
Mar 7 2010, 11:38 PM
My mom just turned in the keys to her house in Mass back to the bank. because the bank was blocking the sale on her home using a short sale. Bank of America really screwed her over.
I am sorry to hear that.

It does point out that the foreclosure situation does hit home and that their are real people who are losing.

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kbp

Quote:
 
"...More than five million households are behind on their mortgages and risk foreclosure. The government’s $75 billion mortgage modification plan has helped only a small slice of them. Consumer advocates, economists and even some banking industry representatives say much more needs to be done.

snip

The problem is highlighted by a routine case in Phoenix. Chris Paul, a real estate agent, has a house he is trying to sell on behalf of its owner, who owes $150,000. Mr. Paul has an offer for $48,000, but the bank holding the mortgage says it wants at least $90,000. The frustrated owner is now contemplating foreclosure.

snip

Under the new program, the servicing bank, as with all modifications, will get $1,000. Another $1,000 can go toward a second loan, if there is one. And for the first time the government would give money to the distressed homeowners themselves. They will get $1,500 in “relocation assistance.”

snip

For communities, the plan will mean fewer empty foreclosed houses waiting to be sold by banks. By some estimates, as many as half of all foreclosed properties are ransacked by either the former owners or vandals, which depresses the value of the property further and pulls down the value of neighboring homes.

snip



That's $3,500 per house just going POOF. WTH does it solve?

Look at the example provided, a house selling for less than $o.30 on the dollar. Then look at what that does to the values of all neighboring 'like kind' houses. I'd say the house in the example is in need of big bucks for TLC and more, as prices have not dropped that far, BUT the sale will NOT indicate any specific problems that established the price. This type of sale creates problems for other sales in the appraisals that will show this sale price, as appraisals including it will not be classified as a foreclosure sale (which is an exception on comparable sales).

Absent this government program, the market corrects itself. A house sale will happen somewhere IF there is actually an "owner occupant" involved. If it's just an investor, then it's an indirect subsidy for them. This will not increase home sales much immediately, it actually hurts them in the future with the decrease in appraisal values.

On another note I'd mentioned before a few times; the Fannie/Freddie/HUD has US (the taxpayers) sitting on foreclosed houses across the nation which are costing us money to hold as they grow into worse shape. They put out reports on the homes held in groups according to number of days held.... I've yet to see any report that tells us the total number held, but after seeing that "five million households are behind on their mortgages" above, I'd bet dollars to donuts the total is near a million.

This entire process creates more problems to face ...all for the price of $3,500 tax payers must pay for.

A part that really burns me up is that $1,000 to the SECOND mortgage company. They are all 'bottom feeders' that hook idiots into low initial payments which jump to that 12-18% after 3-5 years. These mortgage companies should go under and take all their investors with them, not be rewarded. They are NOT foreclosing on houses like that one mentioned BECAUSE they have to pay off the first mortgage to take possession.

On another note I'd mentioned before a few times, the Fannie/Freddie/HUD we, as the taxpayers, are sitting on are costing us money to hold as they grow into worse shape. They put out reports on the homes held in groups according to number of days. I've yet to see any report that tells us the total number held, but after seeing that "five million households are behind on their mortgages" above, I'd bet dollars to donuts the total is near a million.

If we're going to see money wasted on the housing market, it needs to be for OWNER OCCUPANTS, those that at least try to make it THEIR home. This program looks like somebody in the mortgage industry is getting their back scratched, as I do not see any benefit for the public from it.


**************

KerrI,
I'm sorry about your mother's situation. I don't know what the details are there (job lost, over priced purchase....). Unfortunately, many jumped into the housing market when they should not have, a good percentage of them buying houses they knew they could not afford and thinking values would continue rising forever.

What ever the circumstances are for your mom, I hope she weathers the storm and comes out okay in the end.
Edited by kbp, Mar 8 2010, 09:47 AM.
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Baldo
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In California we are seeing drops of real estate prices of 50-60% in some areas. That means some people who bought homes over 5-10 years ago could owe more money on their homes then they are worth. Not all of them were scamming the system. The floor fell out when they lost their job. People are walking away from their homes that they have been paying on for years.

I also look to the Government, Fannie. Freddie, especially the Fed who allowed marginal & Jumbo loans based on the hope Real Estate Prices would always rise. It was being marketed heavily out here. The State & Local Govts were depending on the rise of real estate and building to pay for their expansion of govt.

Every lame brain program was enacted Great increases in compensation and pensions benefits were given out to Police, Firemen, Correctional Officers, and Management. Let the good times roll. That is why police & firemen were making $160,000 a year in Vallejo, CA, which has filed for bankruptcy. The Politicians saw money coming flowing in at unbelievable levels and spent all of it and promised benefits far into the future. It was a Politician feasting orgy by and for governement special interest and employees.

I am afraid the situation is much worse that is being reported. Obama has a real problem. What he should do goes against his political self-interest. He has chosen his political self-interest.
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